Rupee vs Dollar: Why a Weaker Rupee Isn’t Always an Export Booster

Why doesn’t currency depreciation always work in favor of exporters? Explore the hidden challenges it brings, from rising input costs to inflation and economic volatility. Hear from the FIEO President on why this economic puzzle demands a deeper look

author-image
Anil Kumar
New Update
RsVsDollar

Ashwani Kumar on Rupee Depreciation: More Than Meets the Eye for Indian Exporters

India’s Weakening Rupee: An Export Opportunity or an Economic Pitfall?

In a rapidly evolving global economic landscape, the recent depreciation of the Indian Rupee against the US Dollar has sparked mixed reactions among policymakers, economists, and industry leaders. While a weaker Rupee is traditionally viewed as an advantage for exports, Ashwani Kumar, President of the Federation of Indian Export Organisations (FIEO), has highlighted the multifaceted challenges it brings, calling for a nuanced perspective on its impact.

Relative Depreciation and Export Dynamics

Speaking on the matter, Kumar explained that currency depreciation must be analyzed in a relative context. “If the Indian Rupee weakens by 2% while competing currencies decline by 3-5%, Indian exporters lose competitiveness,” he said. In a globalized marketplace, where pricing is key, this relative disadvantage negates the potential benefits of Rupee depreciation.

ALSO READ | India’s Startup Dream: How Financial Services Are Driving the Change?

Moreover, Kumar warned that the assumption of an automatic export boost due to a weaker Rupee is misleading. “Competitiveness depends on multiple factors, including quality, innovation, and supply chain efficiency,” he noted.

The Broader Challenges of Rupee Depreciation

The impact of Rupee depreciation goes far beyond exports, creating ripple effects across various segments of the economy. Kumar outlined several critical challenges:

  1. Rising Input Costs:
    Indian exporters often depend on imported raw materials and components. A weaker Rupee increases these costs, eroding profit margins and nullifying the advantages of depreciation.

  2. Exchange Rate Volatility:
    Frequent currency fluctuations create an unpredictable business environment, making it difficult for exporters to plan pricing strategies and long-term contracts.

  3. Inflationary Pressures:
    As the cost of imported goods rises, including essentials like crude oil, domestic production costs surge. This fuels inflation, reduces consumer purchasing power, and hampers overall economic growth.

  4. External Debt Servicing:
    A declining Rupee raises the cost of servicing foreign currency-denominated debt, intensifying financial strain on both businesses and the government.

ALSO READ | India's Export Revolution: Innovative Incentives for Startups!

A Call for Strategic Interventions

Rather than relying solely on Rupee depreciation to enhance exports, Kumar urged policymakers to adopt a multi-pronged strategy to address underlying issues. He outlined key policy measures to mitigate the negative impacts:

  • Enhancing Export Competitiveness:
    Focus on improving product quality, reducing import dependency, and fostering innovation to strengthen India’s position in global markets.

  • Attracting Foreign Investment:
    Create an investor-friendly climate to encourage stable, long-term capital inflows and boost domestic economic stability.

  • Controlling Inflation:
    Implement effective monetary and fiscal policies to curb inflationary pressures and stabilize domestic prices.

  • Diversifying Export Markets:
    Expand trade networks to reduce reliance on specific markets, thereby cushioning against global economic uncertainties.

ALSO READ | Rupee Hits Record Low Against Dollar: What Does It Mean for Startups?

A Balanced Strategy Is Key to Economic Resilience

While a weaker Rupee may provide short-term relief to exporters, Kumar emphasized that it is not a long-term solution for economic growth. “Rupee depreciation is influenced by complex factors, including global economic trends, domestic fiscal policies, and geopolitical developments. Addressing these challenges requires a well-calibrated approach,” he stated.

Kumar reiterated that strategic policy interventions would be crucial to safeguarding India’s economic resilience. “Sustainable growth cannot be achieved through currency manipulation alone. We need a concerted effort to strengthen the fundamentals of our economy,” he added.

Market Overview: Rupee Gains Amid Volatility

On Friday, the Indian Rupee showed resilience, closing at 86.22 per US Dollar in the interbank forex market, a gain of 22 paise from its previous close of 86.44. The Rupee’s recovery was supported by a decline in the US Dollar Index and easing crude oil prices. However, persistent selling by foreign institutional investors (FIIs) kept the pressure on the currency.

ALSO READ | Micro Funding: Transforming Rural Women into Micro Entrepreneurs

The Rupee opened at 86.31 and fluctuated between an intraday high of 86.16 and a low of 86.36. While Friday’s gains provided some relief, experts cautioned that the Rupee’s trajectory would remain volatile in the near term, influenced by global and domestic factors.

A Long-Term Vision for Currency Stability and Growth

The depreciation of the Indian Rupee presents a double-edged sword for the Indian economy. While exporters may see short-lived benefits, the broader economic challenges underline the need for a comprehensive strategy. As Ashwani Kumar aptly put it, “Currency movements alone cannot dictate economic success. A balanced, long-term approach is essential to ensure India’s growth and competitiveness on the global stage.”

Subscribe